If you’re thinking about securing a mortgage in the Greater Boston area, you’d be wise to consider an FHA loan. A loan insured by the Federal Housing Administration (FHA) offers tremendous benefits, including lower down payments, better interest rates, and easier credit qualifications.
While FHA loans are extremely attractive, you may encounter a few stumbling blocks on your path. Here are 3 common obstacles and suggestions on how to overcome them.
1. High Debt-to-Income Ratio
To ensure that homebuyers don’t commit to a property they can’t afford, the FHA sets certain limits on how high your debt-to-income ratio can be. If you’re using a significant portion of your income to pay off debt, you may not qualify for an FHA-backed loan.
If there’s a risk that buying a new property will take you over this limit, your lender should use the FHA’s TOTAL automated underwriting system to get an instant answer. Underwriting via the TOTAL system often allows for higher ratios than loans than are manually underwritten.
2. Damages to the Property
As a government agency, the FHA follows stringent inspection requirements on new properties: they have to be completely livable with absolutely zero safety or health hazards. A relatively small issue like a damaged window or defective alarm can create major delays as the property is repaired or reappraised.
The real challenge is that as a potential buyer, you’re not yet in the position to make the repairs yourself: you have to appeal to the seller. One solution is the FHA’s 203K Streamline program, which allows you to borrow up to $35,000 to repair the home before moving in. As a last resort, you can petition your local FHA office to waive the safety requirements.
3. FHA Loan Appraisal is Lower Than Sale Price
If the FHA appraisal turns out to be significantly lower than the agreed sale price, your mortgage process can be thrown completely off track. While this does throw a major wrench in the works, it doesn’t mean you need to give up.
Ideally, you would renegotiate with the seller to get the price down to the appraisal. If that doesn’t work, you may need to cough up a larger down payment to make up the difference between the two prices.
We offer FHA-insured mortgage loans in the Greater Boston area; if you have any questions or inquiries, don’t hesitate to contact us for more information.